英文版转曲－非印刷 (2)

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Table of Contents 1.Introduction ....................................................................................... 2

2. China’s coal chemical sector ........................................................... 3 3. Datang Makes a Move ....................................................................... 5 4. Funding Datang’s Move into Coal Chemical: The Initial Impetus.. 9 5. The Policy Environment: Consistently Inconsistent .................... 10 6. A Long and Winding Road: The Short Version ............................. 12 7. A Long and Winding Road: The Long Version ............................. 14 8. After the Fire: Why did Datang Give Up ........................................ 31

1.) Change of Leadership at Datang ................................................ 34 2.) Financial Difficulties ................................................................... 36 3.) Continued operational difficulties ................................................ 39 4.) Lack of Management Capability ................................................. 39

9. After Datang’s departure: The Current Landscape ...................... 41 10. Conclusion .................................................................................... 43 Appendix 1: Summary of Coal-to-chemical Projects ....................... 44 Appendix 2: Charts (Data from Datang International Power Generation annual report) ....................................................................................... 48

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1.Introduction

China has a need for gas. Richly endowed with coal resources, China has relied on the “black gold” for much of its energy needs, with 66% of its energy consumption coming from coal burning in 2014. However, rampant air pollution and other harmful environmental problems, coupled with the government’s desire to diversify its energy resources, have led China to pursue other sources of energy aggressively. Given that gas burns more cleanly than coal, China’s government is keen to expand the use of gas in its energy portfolio, and plans to increase its energy consumption from gas to 10% in 2020 from 5.9% in 2013. This has been key driver for China’s dash for gas, a dash that has seen it secure new gas pipeline sources from central Asia and Russia, increase liquefied natural gas (LNG) purchases on the international market, expand exploration of its shale resources in southern China, and spur China’s state owned enterprises (SOE) to explore converting coal resources into synthetic natural gas (SNG), oil products, and other chemical products. In this report, Greenpeace explores the development of China’s coal-to-chemical sector and environmental problems of the industry. We look at the efforts of one such SOE, the Datang group, one of China’s top 5 state-owned power sector giants, which had the ambition of building China’s largest and most advanced coal-to-gas plants, and its most extensive coal chemical portfolios. We review the history of this portfolio, its genesis and development, and take a deep dive looking at one of the coal chemical projects, the Fuxin Coal-to-gas project, which when completed, will be China’s sixth largest coal-to-gas project. We also cover Datang’s stunning strategic reset, when it announced July 2014 that it would be selling its entire coal chemical portfolio1, completely retreating from a sector beset by environmental, financial, technology and policy risks. Finally, we take a look at the broader implications to China’s dash for gas, and for the coal chemical industry in general, as the country attempts to diversify away from coal.

1 According to Datang’s 2015 mid-year report, there has been neither further news nor details regarding this restructuring.

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2. China’s coal chemical sector Datang’s expansion into the coal chemical sector is intimately connected to China’s energy context. As is well known, China is richly endowed with coal resources, but is poor in oil and gas resources, thus making the coal-to-chemical sector an attractive area of development. Converting coal into chemical has actually had a long history, stretching back to the late 19th century Europe, and has seen varying degrees of boom and bust cycles, as competing fossil fuels, oil and gas, naturally displaced coal as the preferred feedstock. While a complete history of the coal chemical sector is beyond the scope of this note, suffice to say that China’s modern coal-to-chemical sector only started significant development in 2004, and by both its scale and ambition, it is unique from the rest of the world. China is building the world’s largest industrial-scale coal gasification, and is driving ahead to extend coal’s industrial chain to an unprecedented wide variety of downstream products (see image 1 below)2. Image 1: The Coal Chemical Flowchart

Source: Macquarie Research, February 2015 There are three important points that underpin the development of coal chemicals in China. First, China’s 11th Five Year plan (FYP) on Energy (2006 - 2010)3, issued in April 2007, signaled the government’s support for the development of coal chemical technology demonstration projects. Specifically under section 3: “Replacing Oil as an Energy Source”, the plan said that China should “increase the speed of development of coal power bases,

2 Macquarie Research, “China coal-to-chemical”, 9 Feb 2015 3 http://news.xinhuanet.com/fortune/2007-04/11/content_5960916.htm

Traditional Coal-to-

Chemical

Coal

Coking

Gasification

Liquefaction

Coke

Calcium Carbide

Acetylene

CTO

MEG

Synthetic natural gas

(SNG)

Oil Products Modern

Coal-to-Chemical

Food packages, Containers, toys, fibers, electrical appliances…

Antifreeze, polyester fibers and resins, coolant and heat transfer agent…

CTL

Carbon Chemical

DME

Polyolefins

Ammonia

Methanol

CTM

CTG

Indirect Liquefaction

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biomass fuels and coal chemical technologies, through key demonstration projects.” Second, the State-owned Assets Supervision and Administration Commission of the State Council (SASAC), which was and still is the largest shareholder of the Datang Group, was at the time, embarking on a massive effort to consolidate and improve the performance of China’s state-owned companies. The 2005-appointed head of SASAC, Mr Li Rong Rong, was tasked with reducing the number of key SOEs by 40%, from 140 to 100.4 As a result, China’s top 5 power companies, China Huaneng Group (Huaneng), China Huadian Corporation (Huadian), China Guodian Corporation (Guodian), China Power Investment Corporation (CPIC), and China Datang Corporation (Datang or Datang Group), began to diversify into other sectors5 and increase source of income. Finally, local provincial governments6, in an effort to raise local GDP-growth, began to limit the simple extraction of raw coal resources by coal power companies, and instead aggressively pushed these companies to convert locally sourced raw coal into high value-added products7. As a result of these factors, traditional coal mining companies such as Shenhua and China Coal, which were also facing coal transportation bottlenecks8, began to move downstream into the power generation and coal chemical sectors. Conversely, power companies such as Huaneng and Datang, began to move upstream into the coal mining and coal chemical space.

4 央企重组十年路线 “100 家央企”整合目标未能达成 http://www.21cbh.com/HTML/2013-3-9/3NNjUxXzYzNTc3NQ.html 5 For example, CPIC moved into the nuclear power sector, Huadian moved into the financing sector, and Datang, into the coal chemical sector 6 山西省人民政府关于加快三大煤炭基地建设促进全省煤炭工业可持续发展的意见

http://www.shanxigov.cn/n16/n1116/n1458/n1518/n34105/1002981.html 7 山西省人民政府印发山西省煤炭工业可持续发展政策措施试点工作总体实施方案的通知

http://www.shanxigov.cn/n16/n1116/n1458/n1518/n34105/1002607.html []2007 8 At the time, with the exception of Shenhua Coal, most of the entire coal companies were dependent on the Ministry of Railways, which had a monopoly on coal transportation.

http://www.21cbh.com/HTML/2013-3-9/3NNjUxXzYzNTc3NQ.html

http://www.shanxigov.cn/n16/n1116/n1458/n1518/n34105/1002981.html

http://www.shanxigov.cn/n16/n1116/n1458/n1518/n34105/1002607.html

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3. Datang Makes a Move

Datang’s foray into the coal chemical sector was initiated during 2005, when the company was setting its goals for the China’s 11th Five Year Plan (2006 – 2010)10, and in the plan, it explicitly says that “new energy and other related business would occupy a greater proportion of the business”. According to industry analysts, Datang’s strategy to diversify into coal chemical related business was enthusiastically championed by Datang group deputy general manager and board member, Mr Liu Shunda11, and was ultimately approved by the board. At the same time, according to industry analysts, Datang’s move into the coal chemical sector was also motivated by a desire to compete with Huaneng for title of China’s most important power company. A succession of 5 major coal chemical projects were proposed, at combined investment cost of approximately RMB 70 billion: 2 coal-to-gas plants, 1 coal chemistry project, 1 coal fertilizer project, and a huge coal mine in Inner Mongolia, dedicated to provide the lignite coal that was needed. Table 1: Datang’s Coal Chemical Projects Name Keqi Coal to Gas Fuxin Coal to Gas Duolun Coal-to-Chemical

Hulunbei'er Fertilizer

Xilinhaote Mining

Basic Description Datang’s first and China's first large-scale coal-to-gas development to provide gas to Beijing.

Datang's second coal-to-gas project to provide gas to Shenyang, Liaoning

Datang’s coal-based methanol to propylene (MTP) complex

Datang’s coal-based fertilizer plant.

Datang’s coal mining company

Main operating company

Inner Mongolia Datang International Keshiketeng Coal-based Gas Company Limite

Liaoning Datang International Fuxin Coal-based Gas Company Limited

Datang Inner Mongolia Duolun Coal Chemical Company Limited

Datang Hulunbei’er Fertilizer Company Limited

Inner Mongolia Datang International Xilinhaote Mining Company Limited

Approval date 20 August 2009 Construction began 30 August 2009

Approved and construction began Mar 2010

Approved and construction began 2005

Registered at Sep 2007, construction began 27 May 2008

Registered at Aug 2007

Equity Ownership21

Datang Energy Chemical 51% China Datang Corporation10%

Datang Energy Chemical 90% China Datang Corporation 10%

Datang Energy Chemical 60% China Datang Corporation 40%

Datang Energy Chemical 100%

Datang Power 60% China Datang Coal Industry Company 40%

Location Keshiketeng Qi, Chifeng City, Inner Mongolia

Fuxin City, Liaoning

Duolun County, Xinlinguole League, Inner Mongolia

Hulunbeir city, Inner Mongolia

Xilinhaote city, Inner Mongolia

Capacity 2.67 billion m3/year

4 billion m3/year 0.46 million tons/year

0.18 million tons of ammonia and 0.3 million tons of urea/year

10 million tons/year

Total Investment Required (RMB)22

RMB 25.7 billion RMB 24.5 billion RMB 16.2 billion RMB 1.94 billion RMB 1.67 billion

Description Developed to provide gas to Beijing. China's first large-scale coal-to-gas development was suspended in 201423 for 3

Developed to provide gas to Shenyang, Liaoning Datang's second coal-to-gas project. There has been no target date for

Commissioned end-2013, this has faced problems at the methanol to propylene (MTP) units.24

Started production since Oct 2013

Set up in 2007, focusing on the exploitation, construction and operation of an open-pit coal mine

10《大唐集团初步提出发展战略第二阶段行动计划目标》，2005-11，国务院国有资产监督管理委员会http://www.sasac.gov.cn/n86114/n326638/c626741/content.html 11 http://quotes.money.163.com/f10/ggmx_600744_149869.html 21 Datang Power, annual reports & announcements 22 Datang Power, announcement dated May 25, 2010, circular dated September 4, 2009 and other public source 23 http://finance.sina.com.cn/chanjing/gsnews/20140331/093118664075.shtml

http://erp.geo-show.com/201004/09/13393.shtml

http://www.yicai.com/news/2014/03/3650680.html

http://www.yicai.com/news/2014/03/3650680.html

http://quotes.money.163.com/f10/ggmx_600744_149869.html

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months due to corrosion of the gasifiers.

commissioning since the problems at Keqi.

From 2008 to 2014 Datang’s coal chemical assets grew at an annualized rate of more than 20% versus 17.2% for coal mining, and as the size of the coal chemical investments grew larger, Datang’s asset base began to be increasingly diversified. Growth was especially fast in 2009 and 2010, as the year-on-year increase of coal chemical assets was 46.8% and 57.0% respectively. By the end of 2014, Datang’s coal chemical business accounted for 22.9% of its asset base, up from 9.9% in 2008, while its power business fell from 84% to 66% over the same period (see Image 6A & 6B below). Table 2: Segment assets of Datang Power’s chemical business from 2008 to 201425

2008 2009 2010 2011 2012 2013 2014 Chemical segment asset (RMB’000)

7,063,474 25,056,663 39,345,040 49,088,856 63,388,719 73,422,380 73,823,372

Chemical segment YoY growth %

↑46.8%

↑57.0%

↑24.8%

↑29.1%

↑15.8%

↑0.5%

Total segment asset (RMB’000)

172,858,392

188,827,532

218,538,562

256,462,394

283,656,495

310,196,825 322,859,716

Chemical segment asset %

9.9%

13.3%

18.0%

19.1%

22.4%

23.7%

22.9%

Image 3: Datang Power’s Asset Base

Datang’s coal chemical projects were all subsidiaries of Datang Energy and Chemical Company Limited (Datang Energy Chemical), which itself was 100% owned by Datang 24 http://special.21so.com/index/special/sid/12087 25 Datang Power, annual reports

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International Power Generation Co., Ltd (Datang Power), a company listed on both the Hong Kong (Stock code: 991.HK) and Shanghai stock exchange (Stock code: 601991.SH). Compared with other companies that invested in coal chemical projects, which typically kept such high-risk assets off the company’s balance sheet by making them separate legal entities, Datang decided to develop its coal chemical projects as part of its listed entity. According to industry analysts, the intention was to allow investors to take part in the revenue growth potential of these projects, thereby lifting the company’s overall share price, and standing with the investment community26. Image 4: The Corporate Structure of Datang

The investment community was broadly optimistic of these developments. In September 2010, Everbright Securities called Datang’s coal chemical business a “income growth catalyst”. In February 2011, JP Morgan said that Datang’s coal-chemical project was a “positive catalyst in 2011”. Even in Jan 2012, after news of increased technology problems and project delays were released, Cantor Fitzgerald said that Datang’s coal chemical projects were “profit catalyst” and would make it “the most diversified power company among its listed peers”.

26 28/08/2007 大唐发电:大举进入煤化工,半年报业绩同比增加 36% http://www.99qh.com/s/news20070828075243030.shtml

China Datang Corporation

Listed companies

Datang International Power Generation Co.,

Ltd

Datang Energy and Chemical Company

Limited

Liaoning Datang International Fuxin Coal-based Gas Company Limited

Other subsidiaries

Other subsidiaries

Datang Huayin Electric Power Ltd.

Guangxi Guiguan Electric Power Co.,

Ltd.

China Datang Corporation Renewable

Power Co., Ltd

Datang subsidiaries Datang power

generation companies

Other affiliated companies

8

Sept 2010: Everbright Securities - Datang’s coal chemical business a “income growth catalyst”

February 2011: JP Morgan - Datang’s coal-chemical project was a “positive catalyst in 2011”

Jan 2012: Cantor Fitzgerald - Datang’s coal chemical projects were “profit catalyst”

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4. Funding Datang’s Move into Coal Chemical: The

Initial Impetus

Funding Datang’s initiative into the coal chemical sector was going to be a monumental task, given the large capital investments (approximately RMB 70 billion)27 that would be needed. As a result, it was important for Datang to get the support of local Chinese financial institutions, which themselves looked to the central government for the approval to fund such large projects. Datang took cue from 2 key policies: First, in June 2005, the State Council issued the policy document “Pushing the Healthy Development of the Coal Industry”《国务院关于促进煤炭工业健康发展的若干意见》28, where it explicitly mentioned that the government should “speed up and support the development of coal-related business” and that Chinese financial sector should support this.29 Second, in July 2006, the National Reform and Development Commission (NRDC) issued the policy document "Strengthening the Management of Coal Chemical Projects《关于加强

煤化工项目建设管理，促进产业健康发展的通知》30 identifying the funding problems31 that coal chemical projects faced. However, as the next section highlights, unanimous government support for the coal chemical sector was by no means assured. Indeed, over the next ten years, various regulatory bodies - the State Council, NDRC, and NEA, displayed wavering support towards the coal chemical sector, and a variety of policies and recommendations.

27 According to the 2014 Annual Report, the total “非募集资金” for coal chemical is RMB 72.182 billion, of which RMB 64.318 billion had been invested. 28 http://www.gov.cn/zwgk/2005-09/08/content_30251.htm 29 Specifically, the policy said: “Banks of a policy nature, state-owned commercial banks and joint-stock commercial banks should actively improve their financial services and effectively support the development and construction of coal enterprises that conform to state industrial policy and conditions for development.” (政策性银行、国有商业银行和股份制商业银行应积极改进金融服务，加大金融产品创新力度，切实支持符合国家产业政策和市场准入条件的煤炭开发建设。) 30 http://www.sdpc.gov.cn/fzgggz/gyfz/gyfz/200607/t20060713_76372.html 31 Specifically, the policy said: “The coal chemical sector is large scale, integrated, and needs to cater to local conditions; Technology and financing hurdle are high.” (煤化工产业具有规模化、大型化、一体化、基地化的特征；技术含量高，投资强度

大)

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5. The Policy Environment: Consistently Inconsistent

Below we map out the key policies that have influenced the development of the coal chemical sector in China. Datang’s financing and development plans were in varying degrees, influenced by these policies. At the same time however, given that Datang’s projects were large-scale key demonstrative project, they also had an influence on the policies themselves. As demonstrative projects grew in size, scope and experience, and as technological, operational, financial and environmental constraints became more apparent, the government in turn adjusted its own recommendations for the sector. This may also have been another key reason for the government’s seemingly inconsistent and confusing position over the past ten years. Table 3: China’s Overall Coal Chemical Policy Environment 2006-2015

Policies Not Supportive of the Coal Chemical Sector

Policies Supportive of the Coal Chemical Sector

July 2006: NDRC: “Strengthening the Management of Coal Chemical Projects” 《关于加强煤化工项目建设管理，促进产业健康发展的通知》 Focus: Control total capacity, cut outdated line. Develop CTL (methanol and Dimethyl ether) for trial and demonstration. http://www.sdpc.gov.cn/fzgggz/gyfz/gyfz/200607/t20060713_76372.html

April 2007: NDRC: “11th Five year plan on energy” 《能源发展“十一五”规划》 Focus: Accelerate the development of Coal Chemical technology, construct key demonstration projects in an orderly manner. http://news.xinhuanet.com/fortune/2007-04/11/content_5960916.htm

August 2008: NDRC: “Regarding Strengthening the Management of Coal Chemical Projects” 《关于加强煤制油项目管理有关问题的通知》 Focus: Besides Shenhua's Ordos Direct CTL, and Shenhua's Ningxia Indirect CTL joint venture with Sasol, all other coal chemical projects are called to cease further development. http://www.gov.cn/zwgk/2008-09/04/content_1087244.htm

Sept 2009: State Council: “Regarding slowing down overcapacity sectors and ensuring healthy development” 《关于抑制部分行业产能过剩和重复建设引导产业健康发展若干意见的通知》 Focus: Regarding traditional/modern coal chemical: stop approving new projects while focusing on existing modern coal chemical demonstrative projects http://www.gov.cn/zwgk/2009-09/29/content_1430087.htm

June 2010: NDRC: “Regarding the Development of Coal-to-gas projects” 《关于规范煤制天然气产业发展有关事项的通知》 Focus: Only the central NDRC, and not the provincial governments, have the authority to approve coal-to-gas projects Strictly control development of CTG during the 12th five year plan period. http://www.gov.cn/zwgk/2010-06/18/content_1630289.htm

April 2011: NDRC: “Regarding the Healthy Development of the Coal Chemical Sector” 《国家发展改革委关于规范煤化工产业有序发展的通知》 Focus: To control coal chemical development strictly. http://baike.baidu.com/view/11798051.htm

Dec 2011: NDRC: “Guidance of Industries for Foreign Investment” 《外商投资产业指导目录》 Focus: Coal Chemical is taken out from “the list of industries that foreign capital is encouraged to invest in” ( It was in the list in the 2007 “Guidance of Industries for Foreign Investment”) 2007： http://www.mofcom.gov.cn/aarticle/b/f/200711/20071105248462.htmlhttp://www.mofcom.gov.cn/article/b/f/201112/20111207907901.shtmlhttp://www.mofcom.gov.cn/article/b/c/201503/20150300911747.shtml 2011： http://images.mofcom.gov.cn/wzs/accessory/201112/1325217903366.pdf

Jan 2012: NEA: “Strategy Plans to deepen the Development of the Coal Sector” 《煤炭深加工示范项目规划》和《煤炭深加工产业发展政策》

http://www.sdpc.gov.cn/fzgggz/gyfz/gyfz/200607/t20060713_76372.html

http://news.xinhuanet.com/fortune/2007-04/11/content_5960916.htm

http://www.gov.cn/zwgk/2008-09/04/content_1087244.htm



http://www.mofcom.gov.cn/aarticle/b/f/200711/20071105248462.htmlhttp:/www.mofcom.gov.cn/article/b/f/201112/20111207907901.shtmlhttp:/www.mofcom.gov.cn/article/b/c/201503/20150300911747.shtml



http://images.mofcom.gov.cn/wzs/accessory/201112/1325217903366.pdf

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Focus: 18 key demonstrative projects including 15 “high value added” coal demonstrative projects in Inner Mongolia and Xinjiang etc. http://www.cppei.org.cn/fz_text.asp?id=72992&classid=12&cname=%E6%94%BF%E7%AD%96%E6%B3%95%E8%A7%84

June 2012: NEA: “Encouraging Private Sector Investment in the Energy Sector” 《关于鼓励和引导民间资本进一步扩大能源领域投资的实施意见》 Focus: The NEA encourages private capital investment in the energy industry, including CTG projects. http://www.nea.gov.cn/2012-06/20/c_131665600.htm

Jan 2013: State Council: “12th Five year plan on energy” 《能源发展“十二五”规划》 Focus: Support the development of coal chemical demonstrative projects in Xinjiang, Inner Mongolia, Shaanxi, Shanxi, Yunnan, Guizhou and Anhui. http://www.gov.cn/zwgk/2013-01/23/content_2318554.htm

Sep 2013: State Council: “National Air Pollution Plan” 《大气污染防治行动计划》 Focus: Address China’s air pollution issue by focusing on diversifying energy sources. Gives greater support for gas. http://www.gov.cn/zwgk/2013-09/12/content_2486773.htm

Jan 2014: NEA target for 50bcn CTG by 2020, which accounts for 12.5% of domestically made gas” http://paper.people.com.cn/zgnyb/html/2014-02/24/content_1395422.htm

July 2014: NEA: “Notice on the Development of the Coal-to-Liquids and Coal-to-gas projects” 《关于规范煤制油、煤制天然气产业科学有序发展的通知》 Focus: Strictly control approval process, capacity requirements for coal chemical projects. http://zfxxgk.nea.gov.cn/auto83/201407/t20140722_1828.htm

Dec 2014: China reduces unofficial 2020 targets for the coal chemical sector, and will not approve new CTG plants until 2020 http://www.worldcoal.com/coal/23122014/China-curbs-development-of-coal-to-gas-projects-1707

Jan 2015: New environment protection law 《中华人民共和国环境保护法》enforced starting from Jan 1st 2015 http://www.chinalaw.gov.cn/article/xwzx/fzxw/201404/20140400395810.shtml

http://www.cppei.org.cn/fz_text.asp?id=72992&classid=12&cname=%E6%94%BF%E7%AD%96%E6%B3%95%E8%A7%84


http://www.nea.gov.cn/2012-06/20/c_131665600.htm



http://paper.people.com.cn/zgnyb/html/2014-02/24/content_1395422.htm



http://zfxxgk.nea.gov.cn/auto83/201407/t20140722_1828.htm

http://www.chinalaw.gov.cn/article/xwzx/fzxw/201404/20140400395810.shtml

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6. A Long and Winding Road: The Short Version

As mentioned, Datang both influenced and took cue from government policies to develop its coal chemical portfolio. This in turn provided the overall financing support it needed to move ahead. In the below page, we outline the financing timeline of Datang’s Fuxin Coal-to-gas project (hereafter referred to “Fuxin”), and its relationship with other projects in Datang’s portfolio. Note that even though the individual coal chemical projects produced different products, were in different locations, and operated in different market conditions, they were all owned by the same parent company, Datang Energy Chemical, and so how they were financed was strongly inter-connected. For example, an important assumption that was made was that the revenues generated by earlier completed projects would be used to fund the financing costs of subsequent coal chemical projects. Thus, any delays in the Datang’s earlier projects (Duolun) would have implications for later ones (Keqi, Fuxin). In the case of Fuxin, below is the financing summary for the RMB 24.5 billion project from 2009 to 2013. Image 5: Financing summary for Fuxin

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2009 2010 2011 2012 2013

Government subsidy fund

Private placement fromshareholders

Issuance of bond

Syndicated loan from banks

Entrusted loan through parentcompany

Investment from parentcompany

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Looking at the above, note the following: 1.) 2009 – 2010: Early on, Fuxin relied mainly on investments from its parent company. 2.) 2011 - 2012 Fuxin radically diversified its financing. In 2011, investment from parent company was no longer the only source of funding, it also received funding from bank syndicated loans and private placement from shareholders. In 2012, funding from syndicated loan from banks exceeded investment from the parent company. 3.) 2013: Syndicated loan from banks continued to be the major source of funding. At the same time, Fuxin explored a variety of alternative funding sources. It started to receive financing through entrusted loans from the parent company, bond issuances and government subsidy funds. According to industry analysts, Datang had originally planned to use traditional means of financing (parent company investment, loans), but over time, this morphed into a slew of other financing channels such as syndicated loans, bonds, private placements, and direct subsidies from the local government, reflecting the challenging nature of funding such a large project. However, what exactly happened? What were the specific events that led Datang down this difficult path? Below, we do a comprehensive review to explain.

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7. A Long and Winding Road: The Long Version

The section below outlines in detail the process, policies, and decisions which decided how Datang Power funded the Fuxin Coal-to-gas project. This multi-year journey was heavily influenced by external factors such as price of coal, the performance of Datang Power, and the development success/failure of Datang’s other coal-to-chemical projects, such as Duolun. We highlight the important coal chemical policies that either [NEGATIVE] or [POSITIVE] accordingly. Again, please note: 1. China Datang Corporation (Datang Group) is overall parent group, Datang Group is the controlling shareholder of Datang Power, holding 34.77%. 2. Datang International Power Generation Co., Ltd (Datang Power) is a subsidiary of Datang Group, and is a publicly listed company in Hong Kong and Shanghai. 3. Datang Energy and Chemical Company Limited (Datang Energy Chemical) is 100% owned by Datang Power, and is company holding all of the Datang’s coal chemical projects. 4. Liaoning Datang International Fuxin Coal-based Gas Company Limited (Fuxin or Fuxin Coal-to-gas project) is a Coal-to-gas project under Datang Energy Chemical.

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2006 Datang Power Share Price on Hong Kong Stock Exchange (Source: Bloomberg)

Share Price Change Comparison (Source: Bloomberg) Datang Power Huaneng Hang Seng Index

Datang Power Share Price on HKSE (HKD)

Start: 2.85 End: 4.05 Min: 2.41 Max: 4.08 Mean: 2.84

Government Policies July 2006: NDRC: "Strengthening the Management of Coal Chemical Projects" 《关

于加强煤化工项目建设管理，促进产业健康发

展的通知》32 [POSITIVE]

Comment: It is the start of the 11 FYP plan (2006 – 2010) The NDRC policy "Strengthening the Management of Coal Chemical Projects" lays out the key principles for coal chemical developments in China: - control total capacity, i.e. cut outdated line - develop CTL (methanol and Dimethyl ether) for trial and demonstration. Datang starts preparatory work on its first coal chemical project, Duolun, located in Northern Inner Mongolia. This will be challenging project, as Duolun’s coal resources are low quality. However Datang and the local government say that Duolun would have “zero pollution” and be “environmentally friendly”33. According to industry analysts, making this bold claim actually helps to speed up the application process with the NDRC.

Datang Development Plans End 2005/early 2006: Construction on Datang's first coal chemical project in Duolun begins in end 2005/early 2006. Completion date is estimated to be 2009 Financing

32 http://www.sdpc.gov.cn/fzgggz/gyfz/gyfz/200607/t20060713_76372.html 33 http://yqb.dlxzf.gov.cn/wtgdj_xgyw/yqbyqgh/yqbxhjj/200804/t20080420_126698.html

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http://www.sdpc.gov.cn/fzgggz/gyfz/gyfz/200607/t20060713_76372.html

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Datang Power Share Price on HKSE (HKD) Start: 4.05 End: 6.96 Min: 3.49 Max: 9.66 Mean: 5.95

Government Policies April 2007: NDRC: 11th Five Year Plan on Energy (2006 – 2010)34 [POSITIVE]

Comment: An important year, as in April 2007, the NDRC issues the 11th Five Year plan (FYP) on Energy (2006 - 2010) , which for the first time, provides guidance and support for the coal chemical sector. The plan says that China should “increase the speed of development of coal power bases, biomass fuels and coal chemical technologies, through key demonstration projects.”

Datang Development Plans Financing

34 http://news.xinhuanet.com/fortune/2007-04/11/content_5960916.htm

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Operating Income (RMB millions) Power Sector: 916.4 % of total: 207.8% Coal Mining: -444.9 % of total: -100.9% Chemical Sector: 23.8 % of total: 5.4%


Government Policies August 2008: NDRC: "Regarding Strengthening the Management of Coal Chemical Projects" 《关于加强煤制油项目管理有

关问题的通知》35 [NEGATIVE]

Comment: The NDRC backtracks slightly and calls for coal chemical developments to slow down. Besides Shenhua's Ordos Direct CTL, and Shenhua's Ningxia Indirect CTL joint venture with Sasol, all other coal chemical projects are called to cease further development. Datang’s 2008 strategy (announced in 2007) is to “focus on power generation, diversify into other business.” This is the company’s key strategic slogan and will last until 2012, when it changes focus.

Datang Development Plans Datang’s 2008 strategy (announced in 2007) is to “focus on power generation, diversify into other business.” (以电为主、多元协同)36 Financing

35 http://www.gov.cn/zwgk/2008-09/04/content_1087244.htm 36 http://218.70.35.236/2013xwpd/2009-09/17/content_352999.htm

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Operating Income (RMB millions) Power Sector: 2,672.3 % of total: 86.4% Coal Mining: 213.9 % of total: 6.9% Chemical Sector: 20.2 % of total: 0.7%


Government Policies Sept 2009 State Council: “Regarding slowing down overcapacity sectors and ensuring healthy development” 《关于抑制部分行业产能过剩和重复建设引导产业

健康发展若干意见的通知》37 [NEGATIVE] Focus: Regarding traditional/modern coal

Comment: This is a huge year for Datang as it builds its coal chemical portfolio. Investors appear to like the prospects for this business, and Datang Power’s share price rises steadily through the first half of 2009 and peaks in early August. In 2009 Q1, the newly established Datang Energy Chemical becomes the parent company of all of the coal chemical projects, which facilitates the financing of coal chemical projects, and minimizes scrutiny of Datang Power's investments in this sector. Construction begins on Datang’s Keqi coal-based natural gas project and Duolun coal chemical project. However it is also the start of trouble for Datang’s coal chemical plans, as its flagship Duolun project faces various problems, including environmental problems, and has to delay its completion by 2 years38. This is significant as it means that Datang Energy Chemical cannot use projected revenue from Duolun to pay back its loans, or to invest in new projects. Instead, it has to

Datang Development Plans 2009 Q1: Datang Energy & Chemical Co., Ltd. is established, has a registered and paid up capital of RMB 9.7 billion. It is a wholly-owned subsidiary of Datang Power39 Duolun's completion is delayed to 2011, from 2009 previously.

37 http://www.gov.cn/zwgk/2009-09/29/content_1430087.htm 38 http://energy.people.com.cn/n/2014/0623/c71661-25184647.html 39 Datang Power, 2014 Annual Report

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2009 Q3 Construction begins on Datang's Keqi coal-based natural gas project.

borrow to keep on track. As a result, Datang Energy Chemical negotiates with multiple banks, included a policy bank and three state-owned commercial banks for support via syndicated loans. However the response from the state-owned commercial banks is negative, thus forcing Datang to consider more expensive finance options. Investors appear to take notice, and Datang Power’s share price reverses all of the gains it made in the first eight months of the year.

Financing 2009 Q1 Parent company commits RMB 7.4 billion 2009 Q4: Datang Energy Chemical starts negotiation with multiple banks (a policy bank and three state-owned commercial banks) on direct project loans via syndicated loans.

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Operating Income (RMB millions) Power Sector: 3,786.5 % of total: 81.8% Coal Mining: 369.4 % of total: 8.0% Chemical Sector: 331.7 % of total: 7.2%


Government Policies June 2010: NDRC: "Regarding the Development of Coal-to-gas projects"《关于规范煤制天然

气产业发展有关事项的通知》40 [NEGATIVE]

Comment: The troubles from the previous year continue. On the policy front, the government’s attitude is unclear, wavering both for and against the coal chemical development in China. In June, it issues the policy document "Regarding the Development of Coal-to-gas projects" which says only the central NDRC, and not the provincial governments, have the authority to approve coal-to-gas projects. Then in October, given falling coal prices, the NDRC issues the policy document "Regarding the Consolidation of the Coal Mining Sector" which now gives additional support for greater integration of the coal and power sector, encouraging them to diversify into coal chemical, metallurgy and transportation business. Specific to Datang, Fuxin gets official approval from the NDRC. Target completion is end 2014, and it is divided into 3 phases, with the 1st phase to be completed by end 2013. It is an aggressive timeline. Construction continues to move ahead for Datang’s first CTG project, Keqi. The combination of taking on 2 giant CTG projects (approx. RMB 50 billion

Datang Development Plans 2010 March: Fuxin Coal-to-gas project was officially approved by the NDRC.

Financing 40 http://www.gov.cn/zwgk/2010-06/18/content_1630289.htm

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2010 Dec: Datang Power announces that the CBRC has approved its application to do private placement.

investment) and Duolun’s delay in completion creates huge financial pressure on the company, and it is forced to raise capital by issuing more shares through an expensive private placement, because banks are unwilling to provide support through syndicated loans. To do the private placement, it has to seek the approval of the CBRC42. It applies for this in Oct, and in Dec, Datang announces it has the approval to do a RMB 6.8 billion private placement. This move also gives a Chinese policy bank greater confidence to consider arranging syndicated loans in future years. The CBRC approval is time bound; It allows Datang Power to do a private placement sometime within the next 6 months. If it delays past 6 months, the company must reapply. However, even as some financial respite seems to be coming, there is more trouble, as the news of the private placement causes the share price of Datang Power to fall significantly. In fact, the share price is so severe that it leads Datang Power to question whether it can raise RMB 6.8 billion from the planned private placement. As a result, Datang Power has to seek the assistance of its parent, Datang Group, to help the company by buying its shares43. Nonetheless, Datang Power share price ends the year on a low note, around HKD 2.73, from HKD 3.35 at the start of the year.

42 CBRC: Chinese Banking Regulatory Commission 43 http://www.chinaknowledge.com/Newswires/News_Detail.aspx?NewsID=39185

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Operating Income (RMB millions) Power Sector: 1,329.8 % of total: 36.4% Coal Mining: 1,658.6 % of total: 45.3% Chemical Sector: 471.6 % of total: 12.9%


Government Policies Apr 2011 NDRC: "Regarding the Healthy Development of the Coal Chemical Sector "《国家发展改革委关于规范煤化工产业有

序发展的通知》44 [NEGATIVE] Dec 2011 NDRC: “Guidance of Industries for Foreign Investment”《外商投资产业指导

目录》45 [NEGATIVE]

Comment: 2011 is a year of extraordinary financial pressure for Datang Power. On the policy front, the NDRC issues 2 policy documents that are basically aimed to stem overinvestment in the sector. The first, "Regarding the Healthy Development of the Coal Chemical Sector ", issued in April 2011, says that coal chemical developments should be strictly controlled. The second, “Guidance of Industries for Foreign Investment” issued in Dec 2011, no longer encourages foreign capital for coal chemical projects as it did in 2007. For Datang, it only adds to its challenges, as it goes all out to secure funding for its coal chemical portfolio. In May 2011, just before the private placement approval deadline is over, Datang Group buys 2.33 million A shares of Datang Power, and says that it will increase this stake to no more than 2%. According to industry analysts, this allows Datang Power to go through with the private placement in Q2 2011, raising approximately RMB 6.74 billion (target is 6.8), of which Fuxin receives approximately 25%. At the same time, this influx of funds gives greater confidence to a Chinese policy bank and other

Datang Development Plans Financing 2011 Q2:

44 http://www.gov.cn/zwgk/2011-04/13/content_1842862.htm 45 http://www.gov.cn/gongbao/content/2012/content_2144287.htm

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Fuxin receives financing from parent Datang Power’s private placement. End 2011: Fuxin received financing from syndicated loan, including majority from a Chinese policy bank, and the remaining from state-owned commercial banks.

state-owned commercial banks, and so they grant Fuxin a syndicated loan commitment at end of 2011, with a relatively high rate, reflecting project’s risk. However, despite getting financial support for its projects, it appears that investors are not happy with the performance of the company. In Oct 2011, Datang Power’s share price falls below HKD 2 for the first time ever, to an multi-year low of HKD 1.83. Note that only four years earlier, in Oct 2007, it peaked at HKD 9.66.

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Operating Income (RMB millions) Power Sector: 5,659.5 % of total: 73.9% Coal Mining: 1,699.8 % of total: 22.2% Chemical Sector: 108.0 % of total: 1.4%


Government Policies Jan 2012: NEA: “Strategy Plans to deepen the Development of the Coal Sector” 《煤炭深加工示范项目规划》和《煤炭深加工产

业发展政策》47 [POSITIVE] June 2012 NEA: Encouraging Private Sector Investment in the Energy Sector 《关于鼓励和引导民间资本进一步扩大能源领域

投资的实施意见》48 [POSITIVE]

Comment: Finally after years of struggling, there appears to be a light at end of the tunnel for Datang’s Duolun project, as it starts trial production after long delays. However, soon after starting, Duolon faces further technical and environmental problems52, and government authorities orders Duolon to temporarily cease operation for several months53. According to industry analysts, this affects Datang Energy Chemical’s financing for other coal chemical project, as it cannot rely on revenues from Duolun to service loans. As a result, Datang Group and Datang Power sign agreements to increase business with the various Chinese banks, which then makes it easier for Fuxin to secure part of the syndicated loan from the banks. Later in Q4 2012, China Audit Department finds many operational and environmental problems with Datang Group, especially in its coal chemical

47 http://www.cppei.org.cn/fz_text.asp?id=72992&classid=12&cname=%E6%94%BF%E7%AD%96%E6%B3%95%E8%A7%84 48 http://www.nea.gov.cn/2012-06/20/c_131665600.htm 52 http://coalchem.anychem.com/2014/06/14-392.html 53 http://special.21so.com/index/special/sid/12087

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http://www.nea.gov.cn/2012-06/20/c_131665600.htm

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Datang Development Plans Mar 2012: Duolun starts trial production. Dec 2012: Duolun, the prolonged construction-in-progress transferred to fixed asset

division.54 On the overall policy environment, the government appears to now be favorable towards the sector. In Jan, the NEA issues the “Strategy Plans to deepen the Development of the Coal Sector”, which approves 18 key demonstrative projects including 15 coal deep processing demonstrative projects in Inner Mongolia and Xinjiang. And in Jun, the NEA announces the policy “Encouraging Private Sector Investment in the Energy Sector” to encourage private capital investment in the energy industry, including CTG projects. However, according to industry analysts, these largely coal chemical supportive policies do not have an impact on Datang, as their projects are well into development phase.

Financing End 2012: Fuxin received financing from syndicated loan, including from a Chinese policy bank and other state-owned commercial banks. 2012 Q4 Fuxin received RMB 435.5 million subsidy from local government55

54 http://www.audit.gov.cn/n1992130/n1992150/n1992500/3599377.html 55 http://wo.cs.com.cn/html/2012-10/24/content_442333.htm?div=-1

http://www.audit.gov.cn/n1992130/n1992150/n1992500/3599377.html

http://wo.cs.com.cn/html/2012-10/24/content_442333.htm?div=-1

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Operating Income (RMB millions) Power Sector: 9,494.6 % of total: 115.7% Coal Mining: 463.0 % of total: 5.6% Chemical Sector: -2,186.3 % of total: -26.6%


Government Policies Jan 2013: State Council: “12th Five Year Plan on Energy (2011 – 2015)” 《能源发展“十二五”规划》56 [POSITIVE] Sep 2013: State Council: “National Air Pollution Plan” 《大气污染防

治行动计划》57 [POSITIVE]

Comment: Datang continues to struggle with financing its coal chemical portfolio, and it now relies on an even bigger set of options. This is also the year of the “airpocalypse” which hits Beijing significantly, and compels the government to respond. On the policy front, in Jan 2013, China issues the 12th Five Year Plan on Energy (2011 – 2015) and again repeats support for the healthy development of coal-to-chemical Projects in key regions such as Xinjiang, Inner Mongolia, Shaanxi, Shanxi, Yunnan, Guizhou and Anhui. And in Sep 2013, there is renewed interested in the coal-to-gas sector as the September National Air Pollution Plan increases targets for gas consumption, which may have influenced the NDRC’s decision to approve seven coal-to-gas projects58. For Datang, it continues to be a year of struggles, and it is very active year for financing. In Q1 2013, Datang Power issues bonds for RMB 3 billion on the Shanghai Stock Exchange, and approximately RMB 5 billion on the Hong Kong Stock Exchange, of which Fuxin receives RMB 1.5 billion. The amounts raised are used to finance its debt on pre-existing syndicated loans.

Datang Development Plans Financing 2013 Q1:

56 http://www.gov.cn/zwgk/2013-01/23/content_2318554.htm 57 http://www.gov.cn/zwgk/2013-09/12/content_2486773.htm 58 https://www.chinadialogue.net/article/show/single/en/6563-China-s-coal-industry-at-a-crossroads and http://m.magazine.caixin.com/m/2013-11-30/100611686.html

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Fuxin receives financing from bond offering by Datang Power 2013 Q3: Fuxin receives entrusted loan through Datang Energy Chemical. End 2013: Fuxin receives syndicated loan, majority was from a Chinese policy bank, and the remaining from other state-owned commercial banks. 2013 Q4: Fuxin receives approximately RMB 50 million from local Fuxin government

Then in Q3 2013, Fuxin gets approximately RMB 0.7 billion entrusted loan through Datang Energy Chemical. And then in end 2013, Fuxin receives syndicated loans from a Chinese policy bank and other state-owned commercial banks. This time, compared to 2012, there is no new commitment from Datang Power for further business with state-owned commercial banks, and so the policy bank takes up most of the commitment, while the state-owned commercial banks only offer a fraction of the financing. Finally, in Q4 2013, Fuxin received approximately RMB 50 million loan/investment directly from the local Fuxin government, suggesting indicating the perceived importance of the project to the local city’s economy. However, there are signs that the end is near for Datang’s coal chemical dream. First, there is a change in the top management, as Datang’s chairman, and the key person drives its coal chemical strategy, Mr Liu, leaves Datang to join SASAC Audit Committee at the end of 2012. Second, for its 2013 strategy, Datang has significantly modified its key slogan. It no longer says to “Focus on power generation, diversify into other business.” and instead says that it will “consolidate leadership position in the power sector, improve the profitability of the non-power sector, optimize the company business structure.” For 2013, Datang Power has lost RMB 2.2 billion on its coal chemical sector.

(Source: Morgan Stanley)

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Operating Income (RMB millions) Power Sector: 12,421.8 % of total: 237.7% Coal Mining: -1,515.9 % of total: -29.0% Chemical Sector: -5,165.0 % of total: -98.8%


Government Policies Jan 2014: NEA target for 50bcn CTG by 2020, which accounts for 12.5% of domestic gas59 [POSITIVE] Jul 2014: NEA: “Notice on the Development of the Coal-to-Liquids and Coal-to-gas projects” 《关于规范煤制

油、煤制天然气产业科学有序发展》60 [NEGATIVE] Dec 2014: Reports emerge that China has reduced its unofficial 2020 targets for the coal chemical sector, and will not approve new CTG plants until 202062 [NEGATIVE]

Comment: The year starts with rumors that government is raising 2020 targets for CTG production to 50 billion m3, but for Datang, its coal chemical dream is probably come to the end. For its 2014 annual strategy, Datang changes its key slogan again. It drops any mention to “improve the profitability of the non-power sector” and now says that its goal is to “Consolidate leadership position in the power sector, optimize the company business structure”. In the 1st half report for 2014, it says that it also focused on “speeding up the restructuring of low/non-efficient assets.” And in July 2014, it executes this strategy. After years of struggle, bad results, and little return for investors, Datang announces it has entered into a framework agreement for reorganization with China Reform Holdings Corporation (“China Reform Holdings”)64. China Reform Holdings will acquire

59 http://www.platts.com/news-feature/2014/naturalgas/china-coal-to-gas-projects/index 60 http://zfxxgk.nea.gov.cn/auto83/201407/t20140722_1828.htm 62 http://www.worldcoal.com/coal/23122014/China-curbs-development-of-coal-to-gas-projects-1707 64 China Reform Holdings Corporation is a wholly state-owned enterprise of SASAC which served as a platform to facilitate business layout restructuring of state-owned enterprise

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7 July 2014: Datang announces divestment. Share price jumps 20% in one day. Mean share price 1 Jan to 11 Jul: RMB 3.05 Mean share price 12 Jul to 31 Dec: RMB 4.10

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assets or equity interests of Datang’s coal chemical segment and related projects (including Fuxin, Keqi and Duolun).Investors appear to support this move as the share price of Datang Power rises over 20%, reaching 1-year high of HKD 3.73. For the year 2014, Datang’s coal chemical business will eventually report suffered a loss of RMB 5.2 billion68 for the year. The company appears to have had longstanding problems with its coal chemical business. In July 2014, the Securities Times publishes a critical report69 of Duolun highlighting how the company did not use environmental equipment for 174 days in 2013. In December 2014, Datang Power announces that it suspending further development of the Fuxin CTG project.70 Datang refocuses its business on power generation, and starts to get more power plants onto its balance sheet71 under the context of power sector reform. On the policy front, the government appears to have a cautious attitude towards the sector. In Jul, the NEA issues the “Notice on the Development of the Coal-to-Liquids and Coal-to-gas projects” which reiterates the strict approval process and capacity requirements for coal chemical projects. Then in Aug, the NDRC, in its “Guidance on Favoured Industries for Development in Western China” excludes coal chemical from the catalogue of encouraged industries in western China. Finally, in Dec 2014, media reports72 say that the Chinese government has now reversed its positive stance on CTG has reduced its unofficial 2020 targets for the coal chemical sector. Coal-to-gas (m3): 15b from 50b previously Coal to Oil (tons): 6.6m from 30m previously Coal-to-Olefins (tons): 15m from 24m previously Also, the government will not approve new CTG plants until 2020. However, industry analysts believe that for projects already in the pipeline, such as Keqi and Fuxin, they are still expected to see completion.

Datang Development Plans Jan 2014: Datang Power announces that it suspending further development of the Fuxin CTG project.75 Jul 2014: Datang Power announces that it is selling its entire coal chemical portfolio to China Reform Holdings Corporation Financing

68 Datang annual report 2014 69 http://finance.sina.com.cn/chanjing/gsnews/20140714/020819690227.shtml 70http://news.cb.com.cn/html/money_10_23284_1.html 71 http://www.cs.com.cn/xwzx/cj/201504/t20150409_4682945_1.html 72 http://www.worldcoal.com/coal/23122014/China-curbs-development-of-coal-to-gas-projects-1707 75 http://www.cb.com.cn/index.php?m=content&c=index&a=show&catid=21&id=1106838&all

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Operating Income (RMB millions) Six months ended 30 June 2015 Power Sector: 6,027.6 % of total: 148.6% Coal Mining: -135.2 % of total: -3.3% Chemical Sector: -1,805.5 % of total: -44.5%

Datang Power Share Price on HKSE (HKD) As at 25 November 2015 Start: 4.17 End: 2.56 Min: 2.56 Max: 4.94 Mean: 3.70

Government Policies New environment protection law enforced starting from Jan 1st 2015 [NEGATIVE]

Comment: Between Feb to April 2015, the government sends inspection team to check on Datang’s operations and concludes that the compnay “blindly invested in non-power generation industry, causing massive number of inefficient assets”76. After a year since the reorganization announcement, progress has been slow. Reports emerge that the negotiating parties face difficulty agreeing about the value of the coal chemical assets.77 At the same time, Fuxin suffers an annual finance fee of RMB1 billion and an annual maintenance fee of RMB100 million, and there are no further future financing plan for Fuxin in 201678 Coal chemical remains in the Datang portfolio and continues to suffer major loss. According to Datang’s interim report, coal chemical business has suffered a loss of RMB1.8 billion for the 1st half of 2015.

Datang Development Plans Jun 2015: Coal chemical reorganization continues Financing

76 http://www.china-cdt.com/dtwz/indexAction.ndo?action=showDoc&d=6C782813-A7D4-8EB0-B904-1A704DED71BD&t=index_news 77 http://finance.sina.com.cn/chanjing/gsnews/20151121/040423813883.shtml 78 http://finance.sina.com.cn/chanjing/gsnews/20151121/040423813883.shtml

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8. After the Fire: Why did Datang Give Up

As the timeline above suggests, Datang’s failure could be traced to a combination of technology and operational difficulties, financing constraints, environmental issues, coupled with an overestimation of the company’s understanding of the coal-to-chemicals sector. Datang’s sale of its RMB 70 billion coal chemical portfolio was a stunning retreat for a company that had bet so boldly its future on the sector. When it made its sale announcement on July 7th, 2014, investors were ecstatic.

Citi noted that the move "looks positive for Datang, which would have Rmb800m attributable loss from these assets in FY14E, offsetting 20% of its net profit."

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Deutsche Bank remarked that "this could be positive news for the company", as the market has ascribed "significant negative value to Datang's coal chemistry businesses" and as a result, "Datang's share price (had) underperformed peers by 46%, 30% and 122% over the last 6, 12 and 36 months"

Nomura in a note titled "Let it go – GOOD bye coal-chemical" said numerous mishaps including various delays and repairs at the projects had "continuously tested the investors' patience" and that the sale would remove the "biggest overhang on the stock,".

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Standard Chartered said that "the coal-to-chemical (i.e., polypropylene) project remains an unproven venture and has suffered continuous losses (2013: RMB 910mn net loss; 1Q14: RMB 500mn net loss)"

JP Morgan remarked that "While Datang (would) forgo potential upside from its two coal-to-natural gas projects, it will alleviate the company’s high gearing position (>300% in 1Q2014)

As of 2015, there appears to be little further news on Datang’s coal chemical reorganization. As a result of this, several banks continue to believe that the chemical business remains a drag on Datang Power’s financial performance (See below).

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Macquarie said that Datang’s 3Q15 net profit fell 8.4% YoY to Rmb1,543m, mainly dragged by a decline in utilization and poor performance of its non-power business

Citi noted that Datang’s coal-to-chemical business was loss making, offsetting about 40% recurrent profit of the company’s power generation business in 1H15. Based on recent discussion with Datang, Citi said that the disposal of this business will not be made near term and they did not expect it to happen before 1 Jul 2016.

What ultimately led to Datang’s decision to leave the sector? We believe it to be a combination of factors: 1.) Change of Leadership at Datang 2.) Financial Difficulties 3.) Operational Difficulties 4.) Management Inability

1.) Change of Leadership at Datang The first key reason for Datang’s departure may be the change in Datang’s leadership. As highlighted earlier, according to industry analysts, Datang’s strategy to diversify into coal chemical related business was enthusiastically championed by Datang boardmember, Mr Liu. But in late 2012, the Organization Department of the Communist Party of China announced

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that Mr Liu would be leaving Datang, to be replaced by Mr Chen Jinhang.81 As the most active advocate for Datang’s coal chemical expansion, Mr Liu’s departure may have paved the way for new leadership to make radical changes to this failed strategy. Looking at Datang Power’s annual reports over the past several years, we can see how Datang’s corporate strategy evolved. Table 4: Datang Power’s strategy setting from 2006 to mid-2015

Year Wording of Strategy Greenpeace Comment Liu’s position Datang’s action 2006 “电源结构由单一的常规火电向水电、核电、风电等可再生能

源发电转变；产业结构由单纯的发电产业向相关产业链转型” Diversify from conventional power generation towards hydro power, nuclear power, wind power and other renewable energy sources; Transform the power generation business towards other related businesses

Deputy general manager

Duolun commenced

2007 “电源结构由单一的常规火电向水电、风电等可再生能源发电

转变；产业结构由单纯的发电产业向相关产业链转型” “Diversify from conventional power generation towards hydro power, wind power and other renewable energy sources; Transform the power generation business towards other related businesses.”

Compared with 2006, nuclear power has now been removed from the strategy


Duolun under construction

2008 “以电为主、多元协同” “Focus on power generation, diversify into other business.”

A new slogan/strategy is introduced


Duolun under construction

2009 “以电为主、多元协同” “Focus on power generation, diversify into other business.” 2008-2010: 多元产业布局阶 Planning to the diversify business 2011-2012: 多元产业初具规模 Developing the new diversified business 2013-2015: 多元产业成熟阶段 New diversified business reaches maturity

A timeline for executing the new mid-term strategy is proposed.


Duolun delayed Keqi project started

2010 “以电为主、多元协同” Implement “Focus on power generation, diversify into other business.” “加快煤化工核心技术推广应用，全力推进煤化工产业布局” “Actively speed up the development coal chemical”

Coal Chemical is specifically highlighted as a focus area.

Chairman of board

Fuxin approved

2011 “以电为主、多元协同” Implement “Focus on power generation, diversify into other business.” “要特别加快以多伦煤化工、克旗煤制天然气” “Specially speed up developing Duolun and Keqi project”

Chairman of board

Fuxin project construction

2012 “以电为主、多元协同” Implement “Focus on power generation, diversify into other business.” “以煤化工为新增长点” “(Develop) Coal chemical as a new profit source

Chairman of board Liu leaves Datang in Oct 2012

Duolun starts trial operation but faces technical and environmental problems

2013 “巩固发电优势地位，努力改善非电板块盈利水平，加快调优

业务结构” “Consolidate leadership position in the power sector, improve the profitability of the non-power sector, optimize the company business structure.”

The wording of strategy to diversify Datang is modified. There is now new emphasis to “refocus on the power generation business.”

Duolun starts production

2014 “巩固发电优势地位，加快调优业务结构” “Consolidate leadership position in the power sector, optimize the company business structure.” “加快清理处置低效无效资产” “Speed up the restructuring of low/non-efficient assets”

Compared with 2013, “improve the profitability of the non-power sector “ has now been removed from the strategy Then in 1st half report for

Sell chemical portfolio

81大唐集团公司董事长刘顺达卸职 http://www.chinapower.com.cn/newsarticle/1170/new1170097.asp

36

2014, Datang mentions that it is now focused on speeding up the restructuring of low/non-efficient assets

2.) Financial Difficulties

The second key reason for Datang’s departure may be related to the company’s financial difficulties throughout the entire coal chemical development process. As we can see below, Datang’s coal chemical segment never truly met its potential to significantly diversify the company’s earnings. In 2008, the chemical segment accounted for 0.02% of the 2008 profits and this grew to 12.9% in 2011, but this dropped significantly in the following years. Even after the announcement of reorganization, Datang’s coal chemical continued to suffered losses, RMB5.2 billion in 2014 and RMB1.8 billion respectively for the first six months of 2015, Table 5: Datang’s coal chemical profit/ loss from 2008 to 2015:

2008 2009 2010 2011 2012 2013 2014 Six months ended

30 June 2015

(unaudited) Total segment profit / (loss) (RMB’000)

41,960,453 52,772,899

4,629,490 3,657,307

7,662,881 8,206,790 5,225,052 4,056,984

Chemical segment profit/ (loss) (RMB’000)

9,412 198,817 331,707 471,600 108,011 (2,186,275) (5,164,994) (1,805,489)

Chemical % Total

0.02% 0.38% 7.2% 12.9% 1.4% -26.6% -98.9% -44.5%

Source: Datang’s Annual/Interim Report In addition to the financial losses, Datang’s debt-to-equity ratio increased significantly from 2005 to to 2010, as Datang borrowed heavily to fund its coal chemical expansion (See below). While there was similar debt-to-equity ratio increase in other power companies such as China Power and Huadian, the ratio was much higher for Datang. In 2009 and 2010, Datang’s debt-to-equity ratio was more than 400%. Comparatively, from 2005 – 2015, China Power peak debt-to-equity ratio was 258% in 2010, and Huadian’s was 281% in 2011. Granted, the debt-to-equity ratio is just one of several other indicators of a company’s financial health and liquidity, but on this metric alone, it suggest that the Datang’s financial health may not have been as healthy as its peers. Image 6: Datang’s debt ratios exceeded its peers

37

Datang (991.HK)

China Power (2380.HK)

Huaneng (902.HK)

38

Looking at the Datang’s stock price from Jan 2006 (approximately the time when it started development of Duolun) to November 2015, on the Hong Kong exchange, Datang’ share price underperformed compared to the Hang Seng Index, and its competitors, China Power and Huaneng Image 7： Datang’s performance in HK exchange Datang Power Hang Seng Huaneng China Power

Source: Google Finance Taken together, losses in company’s coal chemical segment, increased financial pressure due to higher borrowings, and the company’s underperforming share price relative to other players, may have been the key financial factors that influenced Datang’s decision to sell its coal chemical business.

39

3.) Continued operational difficulties

The third key reason that may explain Datang’s decision to sell its coal chemical portfolio were the operational difficulties that it faced in its all of its major projects: Duolun, Keqi and Fuxin. For the Duolun Project, which commenced in 2005, it first faced various technical and environmental problems in 2009, which forced it to delay construction by two years.82 The project was put into trial production in 2012, but it again faced problems and was ordered by environmental authorities to cease operations until the problems were fixed.84 For the Keqi Coal-to-Gas project, which commenced in 2009, it was found to be causing environmental pollution problems in 2014, and was also ordered by environmental authorities to cease operations until the problems were fixed.85 For the Fuxin, the newest of the projects, commenced in 2010, it has been no different from Duolun or Keqi. It too has faced significant operational and logistical difficulties86. According to industry analysts, by themselves, the individual operational difficulties that each of these projects has faced, while significant, was not fundamentally important in understanding why Datang decided to sell its portfolio, Instead, it was the fact that all three projects were executed within a short time frame, was thus interlinked from a financing perspective. This exacerbated any individual project’s problems and had a spillover effect on other projects. For example, Duolun’s problems in 2012 resulted in missed revenues that its parent company Datang Energy Chemical needed, in order to service loans that it had taken to support Keqi and Fuxin. Thus, these cascading series of operational problems may have ultimate been too painful for Datang to bear, resulting in its eventual decision to sell the entire coal chemical portfolio. Looking at the financial performance of all three major coal chemical projects, Duolun, Keqi and Fuxin, we can see below that all three generated minimal revenue for the parent company. Table 6: 2013, 2014 Financial performance of Duolun, Keqi and Fuxin Projects87

2013 2014 Revenue

RMB’000

Profit/(loss) RMB’000

Revenue RMB’000

Profit/(loss) RMB’000

Duolun 2,547,629 (1,512,825) 1,117,587 (4,866,973) Keqi - (132,564) - (296) Fuxin 266 (92,709) 139 106

4.) Lack of Management Capability The forth key reason for Datang’s exit may be linked to management’s lack of capability and experience in the chemical sector. In 2014, soon after the Datang’s divestment decision was announced, the general manager of Datang Energy Chemical, Mr Zhang Ming, wrote a public assessment of the situation93 and below is a summary of the key points. 82 http://energy.people.com.cn/n/2014/0623/c71661-25184647.html 84 http://finance.sina.com.cn/chanjing/gsnews/20140714/020819690227.shtml 85 http://finance.sina.com.cn/chanjing/gsnews/20140331/093118664075.shtml 86 http://www.cb.com.cn/index.php?m=content&c=index&a=show&catid=21&id=1106838&all 87 Datang Power, 2014 Annual Report 93 http://finance.sina.com.cn/chanjing/gsnews/20140711/013719670279.shtml

40

Table 7: Mr Zhang cites there are 6 lessons that Datang has learned: Chinese English Key Statement Commentary 1. 项目投资千万

不能过界: Projects must not overrun costs

有的企业上项目时只顾花钱一时痛快，

却不计后果。比如设计标准过高，摊子

铺得过大，其结果必然是投资概算一调

再调，投资成本一超再超，最终导致投

产即亏损。

2. 项目建设需要

先主后辅: Projects construction sequence must be organized and prioritized

一些企业项目生产、生活设施主次不

分，眉毛胡子一把抓，主体装置尚未投

产，办公楼、住宅楼等早已高标准建

好。由于非生产性投入过大，本末倒

置，企业投产后难以实现盈利。

Mr Zhang talks about how Datang did not plan the construction of its coal chemical assets well. For example, non-essential assets which did not contribute financially (such as offices and worker’s residences) were actually constructed first.

3. 上项目不能急

于求成 Management should not expect results too quickly.

个别项目为了抢速度、抓机遇、占市

场，图一时之快，不顾行业发展规律，

甚至等不到图纸出来就开工，长周期设

备还没招标就急着建后面的设施，其结

果却是建了改、改了建，频繁进行设计

变更和变更设计，欲速则不达。

Mr Zhang talks about Datang’s overly ambitious schedule for developing 5 major coal chemical projects. He says that Datang projects were overly rushed in order to capture market space, and did not adhere to best practices or designs, and as a result, this lack of coordination led to numerous retrofits and delays.

4 需要坚持“同

步推进”原则 Projects must be developed in harmony

我公司对以往的项目经过认真梳理，发

现由于个别项目未能做到同步推进，造

成了时间和经济上的损失

Here, Mr Zhang again reiterates his view that lack of coordination between various projects was the key reason for the wasted time and money.

5. 要坚持管理出

效益 Effective Management is key

大唐“跨界”发展煤化工，在完全陌生

的领域实现“以电为主、多元协同”的

跨越，就必须突破原有的观念，创新管

理模式。

Mr Zhang acknowledges here that Datang did not understand the chemical sector that it was getting into, and thus, did not have the right “creative management” to meet the challenges of developing this new sector.

6. 坚持精打细算 Controlling costs is key

现在国内一些企业的管理费用呈逐年上

升趋势，这其中虽然有人工成本上升、

物价上涨的刚性增长，但更多的实为追

求形式、铺张浪费所至。过高的管理费

吃掉了不少利润。仔细探究不难发现，

但凡亏损企业多是些管理不严、浪费惊

人的企业。

Here, Mr Zhang talks about how there appeared to be excessive extravagance and waste, especially in “management fees”, which was “shocking”, in his view.

41

9. After Datang’s departure: The Current Landscape

Despite Datang’s difficult experience in the coal chemical space, there appears to be strong ambitions for this sector to grow. According to November 2015 Greenpeace analysis, there are an estimated 136 projects in various stages of completion in China: 30 Coal-to-gas, 13 Coal-to-Liquids, 51 Coal-to-Olefins, 37 Coal-to-MEG and 5 Coal-to-Aromatics projects (See below). In terms of the progress, Coal-to-gas and Coal-to-Liquids projects are moving slowly, with 3 and 5 projects95 in production respectively. Coal-to-Olefins and Coal-to-MEG industries are more mature, with 18 and 15 projects in production respectively, while most Coal-to-Aromatics projects are in the early demonstration stage. Table 8: China’s coal chemical projects by projects

Table 9: China’s coal chemical projects by capacity

Source: data compiled by Greenpeace, as at November 2015 In addition, Greenpeace estimates that the total planned investment for the above projects exceeds RMB 2 trillion96, with most investments in Coal-to-Gas or Coal-to-Olefins projects (See below).

95 3 of which are Industrial Demonstration Projects under 200 kilo-tons (small)) 96 As of October 2015, RMB 230 billion of this amount has been invested on projects that are operating or under construction.

Types of Coal-to-Chemical Numbers of Projects Operating Under

Construction Preparation Planning Total

Number Coal-to-Gas 3 1 17 9 30 Coal-to-Liquids 5 4 4 0 13 Coal-to-Olefins 18 20 12 1 51 Coal-to-MEG 15 9 12 1 37 Coal-to-Aromatics 2 2 0 1 5

Types of Coal-to-Chemical Capacity Operating Under

Construction Preparation Planning Total

Coal-to-Gas (108m3/year) 31.05 83.05 680 405.05 1,199.15 Coal-to-Liquids (104 tons/year) 258 735 1,080 0 2,073 Coal-to-Olefins (104 tons/year) 1,136 1,439 945 80 3,600 Coal-to-MEG (104 tons/year) 332 245 620 30 1,227 Coal-to-Aromatics (104 tons/year) 10 70 0 120 200

42

Image 7: China’s Coal Chemical investment by background

In terms of source of coal chemical investment, Greenpeace analysis suggests that 35% is from national level state-owned enterprises, 33% from the state-owned local enterprises, 24% from private enterprise, and 8% from others. Image 8: China’s coal chemical investment by source

Source: data compiled by Greenpeace, as at November 2015

0100200300400500600700800900

Coal toGas

Coal to Oil Coal toOlefin

Coal toMEG

Coal toAromatics

Inve

stm

ent

RM

B b

illio

n

Others

Private enterprises

Local SOEs

National SOEs

SOE 35%

Local SOE 33%

Private Enterprise

24%

Others 8%

43

10. Conclusion

As we have highlighted in this report, Datang’s failure in this space was due to many factors: local factors such as the lack of management capability, underestimation of risks, constraints of technology, and broader market trends, such as the fall in oil prices, which have affected the financial viability of coal chemical projects in China. It has been an expensive failure; for 2014, Datang’s coal chemical busines loss of RMB5.2 billion. The expensive failure may have also been driven by external parties and policies. As we have shown above, various government bodies were pushing for consolidation of the SOE sector, and for companies to diversify their revenue streams by moving into this sector. At the same time, shifting government attitudes, reflected in policies oscillating between positive and negative on coal to chemical through the years, led to a confusing picture for the industrial sector. In addition, one may also consider the importance of local Chinese financial players, which was the ultimate source of funding in Datang’s coal to chemical project. As China moves towards its 13 Five Year Plan, the first full economic plan under President Xi Jinping, Datang’s coal chemical experience yields important lessons for SOEs, financiers, and policy makers alike. 1.) First, the Coal Chemical sector is extremely risky from an environmental, operational and financial point of view. Companies wishing to enter this sector must have management, operational and technical expertise par excellence in order to succeed. 2.) Second, Chinese state-owned banks and policy banks should exercise caution in extending financing to risky sectors, such as the coal chemical sector. Seeking third party assessment of the risks involved, may be prudent. 3.) Third, given that there is an estimated RMB 2 trillion planned investments in the coal chemical sector in China, policymakers should continue to be viglient that this sector does not grow blindly and without constraints, given the many risks that have been highlighted in this report.

44

Appendix 1: Summary of Coal-to-chemical Projects

Coal-to-chemical Sectors

Condition Area Name Capacity Scale

Investment（RMB

billion）

Coal-to-gas

Operating

Inner Mongolia

Da Tang 4 billion m3 coal-to-gas project in Ke Qi (phase I 1.33 billion m3 ）

3.105 （billion m3/year）

35.2

Xinjiang Qing Hua 5.5 billion m3 coal-to-gas project in Yili ( phase I 1.375 billion m3）

Inner Mongolia

Hui Neng 2 billion m3 coal-to-gas project in Inner Mongolia ( phase I 0.4 billion m3）

Under Construction

Liaoning Da Tang 4 billion m3 coal-to-gas project in Fu Xin 8.305 45.9 Inner

Mongolia Da Tang 4 billion m3 coal-to-gas project in Ke Qi (phase II 1.33 billion m3）

Xinjiang Qing Hua 5.5billion m3 coal-to-gas project in Yili ( phase II 1.375 billion m3）

Inner Mongolia

Hui Neng 2 billion m3 coal-to-gas project in Ordos ( phase II 1.6 billion m3）

Preparation

Xinjiang Xin Tian 2 billion m3 coal-to-gas project in Yili 68 455.65

Xinjiang China Power Investment Corporation 6 billion m3 coal-to-gas project in Huo Cheng

Inner Mongolia

Beijing Enterprises Group Company Limited. 4 billion m3 coal-to-gas project in Ordos

Inner Mongolia

China National Offshore Oil Corporation 4 billion m3 coal-to-gas project in Ordos

Shanxi China National Offshore Oil Corporation 4 billion m3

coal-to-gas project in Shanxi Da Tong Xinjiang Xinjiang Long Yu energy 4 billion m3 coal-to-gas project

in Hei Shang Xinjiang Su Xin Energy 4 billion m3 coal-to-gas project in Zhun

Dong Xinjiang Sinopec 8 billion m3 coal-to-gas project in Zhun Dong Xinjiang Haung Neng 2 billion m3 coal-to-gas project in Zhun

Dong Xinjiang Zhe Neng 2 billion m3 coal-to-gas project in Zhun Dong Xinjiang Beijing Enterprises Group Company Limited 4 billion m3

coal-to-gas project in Zhun Dong Xinjiang Fu Yun Guang Hui 4 billion m3 coal-to-gas project in

Zhun Dong Inner

Mongolia Xin Meng 4 billion m3 coal-to-gas project in Ordos

Inner Mongolia

Jian Tou Tong Tai 4 billion m3 coal-to-gas project in Ordos

Inner Mongolia

Hua Xin New Energy 4 billion m3 coal-to-gas project in Ordos

Anhui Guo Tou Xin Ji 4 billion m3 coal-to-gas project in An Hui

Inner Mongolia

Inner Mongolia Mining Group Xin An Energy and Chemical Company 4 billion m3 coal-to-gas project in Xing An Meng（former Guodian Corporation Xin An Meng Project）

Planning

Inner Mongolia

Da Tang 4 billion m3 coal-to-gas project in Ke Qi (the third-period project 1.33 billion m3 ）

40.505 178.082

Xinjiang Qing Hua 5.5 billion m3 coal-to-gas project in Yili (the third-period project 1.375 billion m3）

Anhui Jing Wan 6 billion m3 coal-to-gas project in An Qing Inner

Mongolia Xin Tong 2 billion m3 coal-to-gas project in Ordos

Inner Mongolia

Zhen Dong Energy 2 billion m3 coal-to-gas project in Bao Tou

Inner Mongolia

Xin An Bo Yuan 4 billion m3 coal-to-gas project in Xin An Meng

Shanxi Jin Neng 4 billion m3 coal-to-gas project in Shuo Zhou Hebei Xin Feng 1.8 billion m3 coal-to-gas project in Han Dan

Shaanxi 4 billion m3 coal-to-gas project in Xun Yi Shaanxi Sinopec 8 billion m3 coal-to-gas project in Yu Lin

Inner Mongolia

Shen Hua 4 billion m3 coal-to-gas project in Ordos

Total 119.915 714.832 Coal-to- Operating Inner Shen Hua 1.08million tons indirect Coal-to-Liquids 2.58(million 41.994

45

Liquids Mongolia project in Ordos tons/year)

Shaanxi YanKuang Group 5million tons indirect Coal-to-Liquids project in （phase I 1 million tons ）

Inner Mongolia

Shen Hua 0.18million tons direct Coal-to-Liquids industrial demonstration project in Ordos

Inner Mongolia

Shen Hua 0.16million tons indirect Coal-to-Liquids industrial demonstration project in Ordos

Shanxi Lu An 0.16million tons indirect Coal-to-Liquids industrial demonstration project in Chang Zhi

Under Construction

Ningxia Shenhua Ningxia Coal Industry Group Co., Ltd 4million tons indirect Coal-to-Liquids project in Ning Dong

7.35 112.54

Inner Mongolia

Yi Tai 4million tons indirect Coal-to-Liquids project in Ordos

Inner Mongolia

Yi Tai 1.2million tons fine chemical indirect Coal-to-Liquids project in Hang Jinqi

Shaanxi Yan Chang 0.15 million tons Coal syngas to liquids industrial demonstration project in Yu Lin

Preparation

Shanxi Lu An 1.08million tons indirect Coal-to-Liquids project in Chang Zhi

10.80 175.5 Xinjiang Yi Tai 1million tons Coal-to-Liquids project in Yi Li

Xinjiang Yi Tai Hua Dian Corporation 2million tons Coal-to-Liquids project in Ganquan Bao

Guizhou Yu Fu Energy 6million tons indirect Coal-to-Liquids project in Gui Zhou

Total 20.73 330.034

Coal-to-Olefins

Operating

Inner Mongolia

Shen Hua Coal-to-Olefins project in Baotou（phase I 0.6 million tons）

11.36 190.686

Ningxia Shenhua Ningxia Coal Industry Group Co., Ltd 0.5million tons Coal-to-Olefins project

Ningxia Shenhua Ningxia Coal Industry Group Co., Ltd 0.5million tons methanol to olefins project

Inner Mongolia

Da Tang 0.46million tons Coal-to-Olefins project in Duolun

Jiangsu Hui Sheng 0.3million tons methanol to olefins project in Nan Jing

Zhejiang Fu De 0.6million tons methanol to olefins project in Ning Bo

Henan Zhongyuan Petroleum Chemical Co.,Ltd 0.2million tons methanol to olefins project

Shaanxi China National Coal Group 2.4million tons complex utilization and deep processing of methanol and acetic acid project in Yu Lin（phase I 0.6 million tons）

Shaanxi Yan Chang China National Coal Group 3million tons Jingbian energy and chemical utilization project（phase It 0.6 million tons）

Shaanxi 2million tons clean energy Coal-to-Olefins project in Pu Cheng（phase I 0.7 million tons）

Ningxia 0.6million tons coke oven gas to olefins project in Bao Feng

Jiangsu Fu De 1million tons methanol to olefins project in Chang Zhou

Zhejiang Xing Xing 1.8million tons methanol to olefins project in Zhe Jiang

Gansu Hua Ting 0.2million tons methanol to olefins project Shandong Shen Da 1million tons methanol to olefins project

Anhui Huayi Chemical 0.5million tons Coal-to-Olefins project Shandong Rui Chang 0.6million tons methanol to olefins project Shandong Hua Bin 0.6million tons methanol to olefins project

Under Construction

Inner Mongolia

Zhongtian Hechuang Energy 3.6million tons Coal-to-Olefins project in Ordos（phase I 1.3 million tons）

14.39 382.019

Inner Mongolia

Jiu Tai 0.6million tons methanol to olefins project

China National Coal Group Meng Da Chemical 0.5million tons methanol to olefins project

Inner Mongolia

YanKuang Group Rongxin Chemical 0.6million tons methanol to olefins pr Inner Mongolia oject

Inner Mongolia

Shen Hua Coal-to-Olefins project in Bao Tou（the second-period project 0.7million tons）

Jiangsu Sailboat 0.83million tons methanol to olefins project Henan Sinopec 0.6million tons coal methanol to olefins project

Xinjiang Shen Hua 0.68million tons Coal based new material project in Urumqi

Xinjiang China National Coal Group 0.6million tons Coal-to-Olefins project in Yi Li

Qinghai Da Mei 1.2million tons coal deep processing project Under Qinghai Qinghai mining 1.2million tons Coal-to-Olefins project

http://www.baidu.com/link?url=Y7Jiyx-kW7pAKSAUz4gYIqRGzzLFNyLCb7MZDAK0E_v6XkdIJ1dgnKMXCI1hBhaVRCofxgXF-BTws7eXMhRCXx8geT_hyNSVjxi3Ap2Z-nUjlZvYSA_uMtEKQvvaCa-_

http://www.baidu.com/link?url=Y7Jiyx-kW7pAKSAUz4gYIqRGzzLFNyLCb7MZDAK0E_v6XkdIJ1dgnKMXCI1hBhaVRCofxgXF-BTws7eXMhRCXx8geT_hyNSVjxi3Ap2Z-nUjlZvYSA_uMtEKQvvaCa-_

46

Construction Qinghai Qinghai Salt Lake Industry Group Company 1million tons Coal-to-Olefins project

Gansu Hua Hong Huijin 0.7million tons Coal-to-Olefins project

Shandong Shandong Yangmeihengton Chemical co.,LTD 0.3million tons methanol to olefins project

Shanxi Shanxi Coking Coal Group co.,LTD 0.7million tons Coal-to-Olefins project

Shanxi Datong Coal Mine Group Co., Ltd. 0.6million tons Coal-to-Olefins project

Anhui Zhongan Joint Coalification Co.,LTD 0.7million tons Coal-to-Olefins project

Guizhou Sinopec 0.6million tons Coal-to-Olefins project in Zhi Jin

Shandong Longgang Chemical 0.4million tons methanol to olefins project

Shaanxi Shen Hua 0.68million tons methanol to olefins project in Yu Lin

Preparation Inner Mongolia

Total China Power Investment Corporation 0.8million tons Coal-to-Olefins project

8.75 165.35

Preparation

Xinjiang State Development Investment Corp 0.6million tons Coal-to-Olefins project in Yi Li

Gansu Jin Long Yang 0.7million tons Coal-to-Olefins project in Jiu Quan

Shandong Dong Run 0.6million tons Coal-to-Olefins project Liaoning Fu Jia 3million tons Coal-to-Olefins project in Da lian

Heilongjiang

Long Tai 0.6million tons methanol to olefins project

Shaanxi Shanxi Binchang Mining Group Co., Ltd 0.6million tons Coal-to-Olefins project i

Shandong Liaocheng Meiwu 0.6million tons methanol to olefins project

Shandong Shangdong Beiteer 0.3million tons methanol to olefins project

Shandong Bai Rui 0.2million tons methanol to olefins project Inner

Mongolia Shen Hua 0.75million tons Coal-to-Olefins project in Hulunbuir

Planning Jiangsu Xuzhou Mining Group 0.8million tons methanol to olefins project Pi Zhou

0.80 4

Total 35.30 742.055

Coal to MEG

Operating

Inner Mongolia

Tongliao Jinmei Chemical Co.,Ltd. 0.75million tons Coal-to-MEG project

3.32 57.405

Inner Mongolia

Xinhang Energy 0.3million tons Coal-to-MEG project in Ordos

Inner Mongolia

Cornell 0.6million tons Coal-to-MEG project

Henan Yongjin Chemical 0.2million tons Coal-to-MEG project in An Yang

Henan Yongjin Chemical 0.2million tons Coal-to-MEG project in Pu Yang

Henan Yongjin Chemical 0.2million tons Coal-to-MEG project in Xin Xiang

Henan Yongjin Chemical 0.2million tons Coal-to-MEG project in Yong Cheng

Xinjiang Xinjiang Tianye carbide 0.05million tons end gas to MEG project ( phase I )

Xinjiang Xinjiang Tianye 0.2million tons Coal-to-MEG project(the second-period project)

Hubei Sinopec 0.2million tons chemical fertilizer syngas to MEG project( phase II )

Shandong Hualu Hengsheng 0.05million tons synthetic end gas to MEG project

Shanghai Huayi Group million tons Coal-to-MEG project Guizhou Qianxi Chemical 0.3million tons Coal-to-MEG project

Hebei Yang Mei 0.22million tons Coal-to-MEG projectin Shen Zhou

Inner Mongolia

Liaotong Jinmei 0.4million tons Coal-to-MEG project

Under Construction

Inner Mongolia

Boyuan Sunit soda ash Co. Ltd 0.1million tons Coal-to-MEG project ( phase I)

2.45 38.6

Inner Mongolia

Jiu Tai 0.5million tons Coal-to-MEG project

Inner Mongolia

Kailuan chemical 0.4million tons Coal-to-MEG project in Ordos

Henan Yong An 0.2million tons Coal-to-MEG project in Luo Yang

Henan Hebi Baoma Technology Group 0.25million tons Coal-to-MEG project

Under Anhui Huaihua Group 0.1million tons Coal-to-MEG project

http://www.baidu.com/link?url=KpN3aNZQ4Zr3xIJXDw9V5nNCrjziBRI8jYM65j3mdwQSLj9Sa4VfbDxaqgAjpdTSsGTsXxiUl5gaFqWDT8bgp4aPwpxAYOLtfhPEolFlcve

47

Construction Shanxi 0.2million tons syngas to MEG project Shanxi Yangmei Shouyang Chemical 0.4million tons Coal-to-

MEG project

Shaanxi Shanxi Binchang Mining Group Co.,Ltd. 0.3million tons Coal-to-MEG project

Preparation

Inner Mongolia

ShanDong Energy Group 0.4million tons Coal-to-MEG project in Hulunbuir

6.20 84.29

Inner Mongolia

Huili Energy 0.2million tons Coal-to-MEG project

Inner Mongolia

Yangquan Coal Industry(Group) 0.2million tons Coal-to-MEG project in Xilin Haote

Anhui Zhongan Joint Coalification Co.,LTD 0.6million tons Coal-to-MEG project

Heilongjiang

Sinopec 0.3million tons Coal-to-MEG project in He Gang

Jiangsu 1.2million tons Coal-to-MEG project in Yan Cheng Guangxi Hua Yi 0.2million tons Coal-to-MEG project in Qin Zhou Guizhou Jing Yu 0.6million tons Coal-to-MEG project in Xing Ren

Inner Mongolia

Guo Neng 0.6million tons Coal-to-MEG project in Bao Tou

Guizhou Haitong Energy 0.3million tons Coal-to-MEG project Inner

Mongolia Beijing Haohua 0.6million tons Coal-to-MEG project

Xinjiang Qi Ya 1million tons Coal-to-MEG project

Planning Anhui CNSG Anhui Hong Sifang Co., Ltd. 0.3million tons syngas to MEG project

0.30 4.854

Total 12.27 185.149

Coal-to-Aromatics

Operating Shaanxi Hua Neng megatonnage Coal-to-Aromatics industrial

pilot project in Yu Heng 0.10 28.848

Shaanxi Kongdan Group 0.1million tons methanol to aromatics project

Under Construction

Heilongjiang

Longmay Tiantai 0.1million tons Coal-to-Aromatics project

0.70 5.695

Henan Sheng Run 0.6million tons methanol to aromatics project

Planning Shaanxi Hua Neng 1.2million tons Coal-to-Aromatics project in Yu Heng

1.20 33.06

Total 2.00 67.603

48

Appendix 2: Charts (Data from Datang International Power Generation annual report) Datang slowly increased its assets in non-power sector over time, which led it to be a more diversified company

However, the real goal was to diversify its revenues, but this did not happen. Revenues from the power sector continued to dominate, and the chemical contributed only a minor proportion.

49

Even worse, the coal chemical segments that Datang invested in, were extremely capital-intensive, and reduced its overall net operating income

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